Democrats are going to attack the GOP tax law from several angles, including SALT caps and breaks for corporations

Key Points
  • Democrats, after winning the majority in the House, have key parts of the signature legislative achievement of President Trump's administration in their crosshairs.
  • Lawmakers plan to focus on hammering limits to state and local tax deductions, as well as breaks for corporations.
  • While divided government may prevent changes to the tax law, the coming fight could set the stage for more reform down the line.
House Minority Leader Rep. Nancy Pelosi (D-CA) speaks during her weekly news conference December 6, 2018 in Washington, DC.
Alex Wong | Getty Images

Democrats are planning to turn up the heat on the Republican tax law as they expand their power on Capitol Hill.

After flipping 40 House seats in November's midterm elections, Democrats will become the majority in the chamber next month — and they have key parts of the signature legislative achievement of President Donald Trump's administration in their crosshairs.

  • One emerging line of attack takes aim at public companies such as General Motors and AT&T that have laid off workers despite receiving big tax breaks under the new law.
  • Democrats are also promising changes to the new limit for households that deduct state and local taxes, which hits blue states particularly hard.
  • Massachusetts Rep. Richard Neal, incoming chairman of the tax-writing House Ways and Means Committee, has vowed to hold hearings on the sweeping $1.5 trillion legislation.

The tax law failed to resonate with voters during the midterm campaign, and now Democrats are looking to press the momentum against it. Activists are already mapping out the battleground. The Communications Workers of America on Monday called on Neal to put AT&T in the hot seat. The union estimated the company has received $3 billion in tax benefits and slammed its decision to lay off more than 7,000 workers this year.

The union is in the midst of contract negotiations with AT&T and represents roughly 100,000 employees. The company gave workers a $1,000 bonus shortly after the tax law passed last year, but CWA President Chris Shelton said promises of wage increases have not materialized.

Democrats "are going to shine the light of day on the large amounts of money that these companies receive by the tax cuts," Shelton said. "At the very least, I think we'll be able to find out more about where the money went."

GM has endured similar criticism after announcing plans last month to lay off 15,000 workers and shut down its iconic plant in Lordstown, Ohio. Three senior Democratic senators — Chris Van Hollen of Maryland, Amy Klobuchar of Minnesota and Tammy Duckworth of Illinois — are demanding that the automaker cancel planned stock buybacks as a result.

The senators also take issue with a provision in the law that reduces the rate that companies pay on foreign earnings. They argue that could incentivize businesses to shift production to other countries and pressed GM to disclose detailed financial information. So far, GM has booked $157 million in benefits from the tax law, according to its most recent earnings report.

"We need to understand how much GM can reduce its tax rate by expanding operations overseas while it closes factories here in the United States," the senators wrote in a letter to GM CEO Mary Barra on Friday. "This requires country-by-country information on GM's profits, taxes, employees, and tangible assets."

Conservatives on defense

Conservative groups are starting to gird for battle over business taxes. Americans for Tax Reform is planning to launch a campaign early next year called Defend 21, a reference to the new corporate tax rate of 21 percent.

"Democrats view any tax rate hike from 21 percent to be a raid on a piggy bank — 'free money,'" said Grover Norquist, the group's president. "Taxpayers and taxpayer-friendly elected officials now must defend 21 percent as a bright line in the sand that cannot be crossed."

Democrats are also eyeing changes to the individual tax code — particularly a measure that limits deductions for state and local income and property taxes to $10,000. Republicans say the provision was partially offset by increasing households' standard deduction. But the so-called SALT cap is expected to raise $829 billion in revenue over the next decade.

Several incoming Democratic freshmen hail from high-tax states such as California and New York, where the cap is unpopular. In New Jersey, which has some of the highest property taxes in the country, Democrats flipped four GOP-held House seats in the midterms, leaving the state with only one Republican representative in the upcoming Congress.

Rep. Bill Pascrell, D-N.J., told CNBC he is working on a bill to get rid of the cap.

"The law specifically targeted middle-class citizens in my state, stealing their state and local tax deductions to pay off corporate executives," said Pascrell, a member of the Ways and Means Committee. "One of our first orders of business will be getting that money back, and we are fine-tuning that legislation."

Many of the changes that Democrats are seeking have little chance of enactment amid divided government in Washington. But Alan Essig, executive director of the Institute on Taxation and Economic Policy, said Democrats are looking beyond the next two years.

"While it may be difficult for the next Congress and President Trump to agree on anything, proposals debated in and approved by the House can set the stage for a debate over true tax reform over the next several years," he said.

Correction: This story was updated to reflect the correct amount of revenue SALT caps are expected to generate over the next decade.